FTSE in-depth: Essar set for an Indian summer

By Rob Davies for the Daily Mail
Updated: 08:50 EDT, 28 May 2011

Market-watchers of a poetic bent may well remember the Rudyard Kipling poem that runs, to paraphrase: 'If you do X, Y and Z then Bob's your uncle.'

Bank holiday: Index rose four days in a row but remains below 6000

Had he been alive today, nature-loving Kipling might well have been pondering the many big ifs surrounding Indian natural resources giant Essar Energy.

In his stead, Deutsche Bank analysts have been ruminating on the firm and have decided that it is significantly undervalued.

According to the bank's stock-wallahs, the market has priced in absolutely no chance of Essar reaching a satisfactory resolution on the future of key coal assets.

The company is awaiting approval for the forest clearance it needs to do to get them up and running, but none has so far been forthcoming. If it gets the go-ahead, Essar shares could be in for an Indian summer.

Deutsche analysts also see the firm's Essar Oil division, which has been making great margins on refining, as significantly undervalued. They put a target price of 540p on the stock, which duly obliged by staging the biggest rise among the bluechips, putting on 22.6p to close at 451.3p.

It was followed up by a whole host of miners and bankers. The dirty diggers were given a helping hand by rising metal prices, while a bullish note on commodities from Goldman Sachs earlier in the week continued to provide a bit of ballast. Antofagasta, up 54p to 1312p, led the way for the miners thanks to its large exposure to buoyant copper prices. Banks were in fine form too. Upbeat notes from SocGen and Citigroup did their bit, quieting continued worries about Eurozone debt.

Lenders were also cheered by reports they may be able to drop the shoulder and dodge straight past some of the more onerous requirements of the Basel III regulatory review. gained the most, finishing up 1.39p at 42.2p.

The FTSE is still struggling to claw its way back past 6000, while volumes remain stubbornly low amid suggestions of sluggish US recovery, persistent trouble in euroland and uncertainty about the Bank's thoughts on rates. Still, the fourth straight day of rises took the index up 57.88 points to 5938.87, a reassuring rise to kick off the bank holiday weekend.

The Dow was up 62.32 to 12465.08, helped by positive noises about global recovery from the G8. Remember that Monday is a holiday in the US too, so no trading there either.

The shooting star of the day has to be office space supplier MWB Business Exchange, or MBE for short, to avoid the confusion that is about to rear its head.

MBE has received a bid of £60m, or 92p per share, from larger rival Regus. The target company says it prefers an offer from majority shareholder MWB (hence the aforementioned abbreviation). They insist that shareholders would get better value out of investing in MWB via its cash-plus shares offer. Aim-listed MBE skyrocketed 43%, gaining 21p to close at 70p.

Debenhams, still Britain's second-largest department store, was in demand amid rumours that it could be a bid target for Dickson Poon, the Hong Kong retail tycoon. Poon already owns Harvey Nichols and has also been named as a potential suitor for posh jewellery brand Aurum. No offence to Debenhams, but Poon's name is usually associated with brands at the more upmarket end of the high street. Stranger things have happened though and Debs gained 1.35p to 74.15p.

London Stock Exchange showed no signs of losing the gains it has enjoyed from talk of a bid from Nasdaq, putting on 41p to 990p. As reported in these pages this week, the ever-charismatic chief executive Xavier Rolet says that 'stuff is going on', so traders haven't been minded to take profits just yet. The LSE has a history of robust defences against mega-bids, so any offer would likely come at a healthy premium.

The rumour mill did exciting things for Burberry as the brand beloved of the billionaire's trophy spouse and the football hooligan alike was said to be planning a Hong Kong listing. The suggestion helped it put on 30p to 1290p. However, a company spokesman insists this was all down to some excitably local Hong Kong media types getting the wrong end of the stick, so those gains could well be wiped out come Tuesday.

Losers were few and far between, but at the moment you can always rely on Southern Cross. Britain's largest provider of care homes is still in serious trouble after asking landlords at around half of its properties to forego rent payments for four months.

Traders shaved nearly 7% off the stock, which is now trading at a lowly 8p, down 0.57p, a year after touching 45p.